A case of mistaken redundancy payment

An employer that mistakenly paid a senior employee a redundancy payment has been told by the Victorian Supreme Court that the employee can keep the payment.

In the case TRA Global v Vesna Kebakoska [2011] VSC 480, Ms Kebakoska was the National Operations Manager at recruitment company TRA Global on a salary package of $130,000 per year. Her employment was made redundant in June 2008. Upon termination of her employment, TRA Global paid Ms Kebakoska, amongst other things, a redundancy payment of 12 weeks pay, amounting to $27,314.57. TRA Global believed that this was the payment she was entitled to under the relevant award. Ms Kebakoska was not legally entitled to this payment. Following the termination of her employment, she was unemployed for eight months. As a consequence, Ms Kebakoska spent most of the redundancy payment on living expenses.

About a month after the termination of her employment, Ms Kebakoska applied to Centrelink for unemployment benefits. However, her application was refused because she had received the redundancy payment. Subsequently, Ms Kebakoska sued her former employer for a bonus that she claimed she was entitled to. TRA Global counterclaimed for the redundancy payment, arguing that it had made a mistake in making the payment to Ms Kebakoska and the Court should order her to repay the full redundancy payment amount.

The Victorian Supreme Court reviewed previous cases where a party has sought to recover payment that has been made because that party mistakenly believed they were legally obliged to make the payment. The cases show that where a party by mistake makes a payment in ignorance of its legal position and subsequently discovers that it was not legally obliged to make that payment, that party usually has a right to sue to recover the payment.

However, the Victorian Supreme Court found that Ms Kebakoska did not have to repay the redundancy payment because she had a number of defences against TRA Global. The legal argument in the case canvassed the history of a number of different legal doctrines but, in summary, the Court allowed Ms Kebakoska to keep the payment because she had suffered a detriment in being denied unemployment benefits and she would not have suffered that detriment if she had not relied on what TRA Global had told her, which was that she was entitled to the redundancy payment.

While it will generally not be a defence in these circumstances to argue merely that the money has been spent on living expenses, in this case, as Ms Kebakoska changed her position - that voided her entitlement to unemployment benefits - in reliance on the redundancy pay, the Court found that it would have been unjust to require her to repay the redundancy pay. Given that Ms Kebakoska did not make her application for unemployment benefits until approximately a month after the redundancy payment was made to her, it is arguable that if TRA Global had realised its mistake sooner and acted swiftly to seek to recover the redundancy payment from the employee, it would have stood a much stronger chance of obtaining a favourable decision.

What does this mean for employers?

• Employers need to understand their severance payment obligations when making employees redundant.
• Employers should not assume that, just because some employees have certain entitlements, all their employees have the same entitlements, particularly since the commencement of the National Employment Standards (NES) and modern awards on 1 January 2010.
• Under the NES and/or a modern award, employees may have an entitlement to redundancy pay based on years of service. Employers need to be aware that some employees’ service prior to 1 January 2010 will not count for the purposes of calculating redundancy pay and other employees’ service before that date will count for that purpose.
• It is likely that if the employer in this case had realised the mistake straight away and taken action to recover the mistakenly paid amount, the outcome would have been different. Delay can be fatal in situations such as this.

Tips for employers

• When implementing a redundancy program, always review the employee’s contract, enterprise agreement and any applicable modern awards to assess their entitlement to any severance payments, including notice and redundancy.
• Seek legal advice if unsure about the relevant entitlements, particularly regarding payments to directors or senior executives which may also require approval from shareholders under the Corporations Act 2001 (Cth).
• Act quickly to recover any overpayments if payments have been miscalculated.